WASHINGTON - The U.S. Senate on Dec. 2 passed a tax reform bill, joining the House, which passed similar legislation in November. As the two bodies work to reconcile their proposals, those in agriculture have expressed mixed reactions.
Some believe the lower tax rates, immediate expensing, business interest deduction, cash accounting and scaling back of the estate tax will be positive for farmers and ranchers. Others worry about the effects of increasing the deficit, which could jeopardize farm safety net programs.
But Kristine Tidgren, assistant director for the Iowa State University Center for Agricultural Law and Taxation , says neither side is wrong.
"There are benefits, and then there will be burdens. None of us like to see the deficit increase. That can mean cuts to programs down the road. But I think the proponents say if you pay fewer taxes you get to have more money you get to decide how to use," she says. "There are policy arguments on both sides."
Tidgren says her organization is watching two provisions above all: what happens with pass-through entities and the loss of the Domestic Production Activities Deduction .
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On the future of taxation for pass-through entities, Tidgren says the effect on farmers and ranchers will depend on what happens during reconciliation. Both versions contain reductions in rates for qualified business income, but there are differences in how various structures of businesses are taxed.
"We don't want anything that's going to be too complicated," she says. "Whatever happens would ideally ... allow farmers to continue operating under their current structure and not do some major entity changing."
The loss of DPAD could hit cooperatives and their members particularly hard, though Tidgren says the Senate bill contains a provision that was "really set up to be almost an expansion of DPAD." Depending on how it plays out in conference committee, the new legislation might make up for the loss, she speculates.
The bills largely leave in place the ability for most farms and ranches to deduct business interest, to use cash accounting and like-kind exchanges for real property, which Tidgren says is good for producers.
The House proposal would eventually get rid of the estate tax, and the Senate would double the basic exclusion amount.
"A lot of people would embrace that," she says. "The estate tax as it currently is doesn't impact a lot of people, though."
Tidgren believes the Senate bill in particular could be good for farmers, though much work remains. However, positives for farmers' tax bills could be offset by effects on the deficit that would trigger sequestration.
The Congressional Budget Office has estimated the price tag of the legislation at $1.5 trillion over 10 years, which would lead to a mandatory decrease in benefits paid. That would mean automatic cuts to some farm bill programs, including Agricultural Risk Loss Coverage and Price Loss Coverage. Tidgren says it could lead to approximately 6 percent cuts in those programs, as well other government programs, including Medicaid. There also could be implications for writing a new farm bill.
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A big issue for farmers that Tidgren feels hasn't been adequately addressed is health insurance. The Senate bill would remove the Individual Shared Responsibility Payment, which is the fee that must be paid if one does not carry health insurance.
The marketplace for insurance already has problems, and removing the requirement for carrying insurance could create more chaos; however, Tidgren says it's hard to see how it could get much worse.
She has heard of Iowa farmers who, because they make just under 400 percent of the poverty limit, qualify for a tax credit and can find coverage for $12,000 per year. But those just over 400 percent of the limit are looking at premiums of more than $40,000 per year.
"They want to buy insurance," she says. "They just simply can't afford it."
